Comments: It seems like weeks ago but we began this week fearing if the current system of funding home mortgages in the United States was to remain upright in current form. Once we were assured the government will print enough money as it takes to prop up.... err support...err promise to support but only in worst case scenario and don't you dare call it a bailout... the GSEs, and then financials as a whole - took off. And we had our "rotation" because as you know in this stock market, we cannot have all sectors working at once; so if "early cycle" stocks work than that giant sucking sound you heard (those of you old enough to remember Ross Perot know what I'm referencing) was hedge fund money being sucked out of commodities. Folks, I have not had time to really delve into economics or interesting stories this week since we've been focused on transactions and the crazy life of financials, but I highly recommend some weekend reading of this damning story by Portfolio.com in regards to Countrywide Financial's CEO Angelo Mozilo and his "Friends of Mozilo" program - i.e. give preferential mortgage terms to those in power in return for... ? (dare we utter it out loud) Hah. Does it say everything we talk about all the time - what a corrupt system - the regulators watching over the financials are partaking in this favoritism? Foxes watching henhouse, Senator Dodd? I tell you if Dodd had somehow been the Democratic presidential candidate this story would be #1 on every news channel in America. Instead it's just for people like me to scoff at on back channels; but truly it is an example of why our leadership is such a disaster.
But I digress... this was a tale of two weeks - (a) Monday, Tuesday, Wednesday, and Friday. And then (b) Thursday. The day the music died ...... and this guy ------> showed up to strike his light saber through our sternum. Ouch. Thursday alone we dropped 3.5% while the S&P raged up 1.2% so we lost 4.7% points of relative performance versus the index in 1 day. Horrid. (But hey Mr Ken Heebner lost 5% that day) ;) If you owned commodities you were blindsided and smacked on the side of the head. Now on weeks like Thursday in the past corrections, we actually would of had even more pain applied by remaining short financials, and real estate so we learned that lesson. So instead of losing 6% that day we lost 3.5%. Small victory. The other 4 days of the week we actually beat the market by 1%, but it was impossible to overcome Darth's visit on Thursday. We had some excitement this week when something that should of been fantastic, our #1 position being taken over, turned relatively sour quickly. Instead of enjoying a nice 30%ish pop on a 5% stake - we actually lost money in the position this week. Go figure - did I mention how much I enjoy bear markets?
I continue to like our stocks but we did not own the flavor of the week in heavy exposure - we do have some financial and housing exposure as part of our barbell exposure but only so that on weeks like this we are not found on the side of the road, in a ditch. We don't exactly like these groups but after being hammered for a month and a half they are overdue to bounce, and bounce they did. I don't see it lasting too much longer. As we've been saying for ages, the global economy will be slowing. This only seemed to dawn on people last week. So they started selling commodities, because worldwide economic activity will drop 40% in the next month now that Wall Street has woken up to the situation. My open question is where will you go to invest if not the growth in commodities? Aha technology is safe! [The Google Gap] Err, not so much. CNBC tells me healthcare is hot and the way to best hide from the bear! [Did I Mention Healthcare is Safe? Gilead Sciences Down 9%] Here's the thing about bear markets; nothing is safe for long. All the sacred cows get beaten; it's all relative. I still believe our stocks are the "relative" best, but during pockets of the bear they will be punished just the same. This week was one of those weeks. Let's say oil does drop another $20... we'll be told that we must buy consumer stocks since the American consumer is back. Right - because housing will bounce back, food inflation will reverse, jobs will be plentiful and unicorns will run free through the streets as $3.25 gas is so very different from $4.10 gas. Get back to me at crude $75; then we'll talk. But that won't stop those "consumer friendly" stocks from running since all it takes is a "thesis" (no matter how wrong it is) for hedge funds to jump in and cackle with glee at this newfangled idea they've cornered. Fantastic ideas such as technology & healthcare are safe.
Looking at the market overall, the S&P 500 has now rebounded to 1260. 98 of 100 pundits will assure us this is the bottom. The other 2 pundits will be locked outside CNBC's studios. We'll ignore the the other 98. I keep pointing to 1275 as a point I need to see to get above to feel even mildly safe. (safe being a relative term) 1275 is not asking for much; it is only the 20 day moving average. At this point all I see is a very oversold condition in a bear market being worked off (or potentially close to being completely worked off)
What I explain to people who have not experienced a bear market is to turn this chart upside down. If you did, this would be a healthy "pullback" in a longer trend upward (where you'd be buying stocks on their pullbacks). Unfortunately my head is attached on correctly so its a healthy "pullback" (meaning up) in a longer trend downward. And if it breaks through that level, the 50 day moving average lies as resistance just ahead in the 1310s range. And if it breaks through that level, the 200 day moving average lies as resistance way up at 1390. It could reach all the way up there and we are still in a primarily broken market. So we'll see which of the levels it breaks at. My working thesis has been a "bounce" and then another leg down. The question is how big and long is the bounce, and when does the new leg down begin and where does that one take us? I'd like to be incorrect on this thesis but hope is not an investing thesis as I've read in many places. So we'll remain cautious and increase short exposure if/when things continue up. Just treat everything as upside down - instead of buying on pullbacks we are selling (as we did later in the week) on punches upward. This will continue until one day we are wrong, and the new bull emerges, and at that point we'll lock in losses (from being short) turn into a Kool Aid touting bull, and clap during Larry Kudlow's show. But that could be 2010 for all I know.The S&P 500 gained for the first time in 7 weeks securing a 1.7% appreciation, while the Russell 1000 gained 1.6%. Rising Tide Growth, led by such stalwarts as our housing stocks and Ultra Financial (UYG) [note to self, any week led by housing or financials is not a good week] stumbled to a 2.0% loss. So the market "caught up" to us this week in a material way. After a stellar June relative to the markets, we're having a clunker of a July; it feels like quicksand right now. Nothing works for more than a few hours or at most a day or two. 2 more weeks to go to close our year 1. Almost... there.
As always if interested in pledging an investment when fund is ready to launch (shooting for late 2008) please attach a comment here, or send me an email (need your state please). We have now breached >$3 million pledged - great news and thank you.
Price of Rising Tide Growth: $11.425
Lifetime Performance to date (vs Aug 3, 2007): +14.25%
Comparable S&P 500: 1260.7 (-13.96%)
Comparable Russell 1000: 690.2 (-13.31%)
Fund return vs S&P 500: +28.2%
Fund return vs Russell 1000: +27.6%
Last week's results here.
Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of July 2008.
Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2
To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.
Please click here: fund performance for previous updates
4 comments:
I'm looking forward to riding my unicorn to work
Well mark, these weeks are great (for people that can look farther than 10 days, which is 1 out of 10, 8 cannot, 1 is a long term investor, but is blind, and the last has 20/20 and is a long term investor ;) )
because it sets you up to have a 5%+ week sometime within the next 4-6 weeks.
Of course the Heebnerians would be all over you for your underperformance like the shorts on financials until wednesday ;)
I think the "story" now lurking is the commodity bull market over and if so, then it can only be a matter of time for equities. Sure it all makes sense: oil goes down, stocks go up. But stocks are in a bear market and commodities in a bull market and these countertrend moves over the past 3-4 weeks have done nothing to change the big picture. The only risk to commodities is if the current recession leads to deflation, and in this case, both stocks and commodities will suffer. But I doubt this will happen or rather I see nothing in the markets that suggests deflation as central bankers seem willing only to jawbone their way out of the crisis.
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